Every firm on the Street has provided a “house view” of year-end 2023 levels for various equity indices and other financial assets. As I covered in an article on Dec 22nd entitled “Predicting stock prices: 2023”, one thing is for sure – the consensus opinion for 2023 year-end levels across asset classes will almost certainly be wrong, not only as far as magnitude, but quite possibly directionally, too. Providing this blatant “health warning”, I see no reason I shouldn’t register my guesses, too!
The tables below provide my year-end “guestimates” for 2023 for international equity indices, U.S. Treasuries and other asset classes like corporate bond spreads, gold, oil, and select currencies.
My outlook does not affect the core of my personal portfolio, which is mainly comprised of individual stocks, US Treasuries, a small amount of corporate bond and (non-US) stock ETFs, cash and gold. However, I do remain more skewed towards cash and US Treasuries than in the past, although at the same time I am holding onto the stocks – many defensive – that I think will thrive in the coming five or more years.
The macroeconomic assumptions on which I have based by guesstimates are as follows:
For the US I have largely followed the Fed’s most recent economic projections, although I expect the US to enter a shallow recession by 2H2023
In the UK, I believe the Bank of England will hold its nerve to address inflation. Fiscal “offsets” are not possible (as we found out under PM Truss), and BREXIT effects are making the situation worse. The UK economy will contract this year and will be the worst performing of the G7 economies.
In the Eurozone, the energy issue is slowly becoming the new norm as Europe slowly adapts to less Russian oil and gas. Unlike the BoE, the ECB could capitulate at some point so as to avoid the severe pain that might otherwise be needed in the common currency bloc to see off inflation. Any monetary gimmicks will see market forces take matters into their own hands, and this is particularly true with respect to fragmentation[1].
Japan will continue to be Japan – very insular and weakly correlated with the US and Europe. The Bank of Japan has started on a mild tightening path as inflation has risen (largely imported from other countries with higher inflation and caused by higher energy prices). As the BoJ follows its central bank brethren, this will provide continued support for the Yen.
China’s moderating of its zero-COVID policy will bring short-term pain but long-term gains. Optimism seems to be on the upswing generally regarding the Chinese economy after a poorer-than-expected 2022, and my assumption is that this optimism gains momentum into the second half of 2023.
Ukraine-Russia war drags on. (Should the war suddenly end, I would expect risk assets to rally and that there would be a "peace dividend", which might prove sharp but could also be temporary.)
Just like the year-end 2023 guesses for various indices and financial assets in the tables below, these macroeconomic assumptions are largely the same – guesses, albeit educated at least (or I hope!).
Below are my estimates for 2023 year-end levels for various indices and assets along with the rationale and the closing 2022 levels (for comparison). If you click on the tables, they will be enlarged.
International equity indices: my y/e 2023 guesses
U.S. Treasury yields: my y/e 2023 guesses
Corp bonds, gold, oil and currencies: my y/e 2023 guesses
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[1] If you are unfamiliar with fragmentation, you might want to read this article from Allianz published in July. 2022.
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